Partnerships key to retail fund of funds at Sella Gestioni

A new approach to the use of open architecture is behind the introduction of fund of funds strategies at Sella Gestioni in Italy, explains Mario Baronci, who heads the selection team.

Italy’s Sella Gestioni Sgr, the asset management arm of domestic bank Gruppo Banca Sella, launched its Star Collection at the end of January, a multi-manager fund of funds created using five different strategies.

The investment portfolio’s focus is on medium/long-term euro bonds, balanced emerging markets, global multi-assets, international bonds and international equities.

Funds included in the five strategies are selected among international houses. Most of the process is run by Sella Gestioni, on behalf of its holding bank, by a team headed by Mario Baronci (pictured).

Allocation balance

Baronci says that the decision to step into the fund of funds arena has been driven by the willingness of the bank to handle the open architecture process offered to retail clients in a more effective way.

Star Collection allows investment advisers to balance the allocation of clients’ money on a constant basis. Retail investors have a target volatility, which in current markets has become hard to abide. The right mix of funds managed by the biggest international players make this process easier and more effective for the bank.

Fund houses are selected through a careful qualitative and quantitative screening, based on the investment philosophy and process, and performance consistency.

This process is run by the fund selection team with the support of the research team at the bank.

“We work with about 15 fund houses, giving priority to firms with which Banca Sella has set up partnership agreements,” Baronci says.

On top of these six players, Baronci has selected about 10 extra firms which are taking a relevant weight in the portfolio mix.

“We have a carefully selected investment universe,” Baronci adds. “We assign an internal rating to funds in each asset class, based on our proprietary research, following which we derive a buy list for top funds. A third of the quantitative analysis we use is developed by our research team, two thirds comes from external data providers.”

Quantitative analysis is applied to each fund’s past performance over the past three years, a very robust time span in which risk aversion regimes constantly alternated, with sharpe ratio and information ratio as the main parameters. Funds are taken into account only if they have at least three years of distribution.

Team coach

Given the experience of the bank in fund selection, Baronci’s team acts like a football team coach. “We already know who are the best players, but we have to field the ones that work better for each match,” he says.

Each fund of funds includes 10 to 15 funds, as Baronci believes diversification can add value only up to a limited number.

At the moment, given the initiative has just launched and is a work in progress, the funds mix is updated on a daily basis. Looking ahead, Baronci expects the funds will be reviewed on a monthly basis, with constant monitoring of performance.

So far, Star Collection has been welcomed by the market, and the fund has posted interesting inflows in the first few weeks. Looking ahead, the Italian bank has set an ambitious target of inflows for its new product, made even harder by current market conditions.

It is yet to be seen if the Italian investment market is ready to light up for this new offering. If this proves to be the case, it is likely the strategy formulated by Banca Sella will be soon replicated by most of its competitors.